Doug,
     As you suggest, there may be mitigating factors relating to the public debts. The Germans. for example, may have greater earning power and, thence, more ability than other Europeans to pay off what they owe. Nevertheless, debt in the Eurozone, like that of the USA, is becoming overwhelming. I see no way to solve the problem short of large scale, planned inflation which would allow debts to be settled with devalued currency, If that should happen, sound equities will retain some value, which should be redeemable when a new monetary system is established.
     I have not done so but I think it might be instructive to investigate what happens to large companies during and after periods of hyperinflation.
Seán

quote:

I have not done so but I think it might be instructive to investigate what happens to large companies during and after periods of hyperinflation.
Seán

Hyperinflation is a term that grates on me a bit. I think because when I hear it I think of Germany at the end of the war or other collapsed economies. In those cases the causes were more extreme and somewhat unavoidable by the time the inflation took hold. That is entirely different from today, from us. At least it would not be so dramatic or sudden. And it can be addressed in a multitude of ways. We can tax our way out of debt, we just don't want to. Our taxes are the lowest in half a century.

I have looked at what happens to companies and stock prices during times of high inflation. My personal conclusion on the scenario is that at first stocks do well and simply adjust with the inflation. This appears to be growing earnings.

The consumer starts to get hurt first because wages usually lag the CPI. Thus less disposable income. So company earnings become moderated.

Then comes the attempts to rein in the inflation. That starts to do damage. Higher interest rates hurt companies by raising costs. As the consumer is spending less the companies lose their pricing power and prices lag the inflation further depressing earnings while facing the higher interest rates costs and continuing wage pressures.

But then it all rebalances. Wages grow to the new inflated levels restoring consumers purchasing power which restores pricing power for the companies and increasing earnings.

Stock prices may be the last to recover but they also tend to rise further than necessary as the increased earnings are seen as growth rather than a rebalancing and it sets up the situation for a stock bubble, high PEs.

That is how I picture that it has and will progress.

But we have almost NO inflation at the moment let alone "hyper" inflation. There is a whole lot of room for all sorts of things to happen between now and the other.

Doug,
     I like your view of our economic future much better than my own. Let's hope you're right. Given strict fiscal restraint and a sharp increase in taxes I think we could pay off our debt in the course of time. Would the voting public tolerate the hardship? Or can the affluent minority be forced to bear the burden?
Seán

    As I write this the Euro is trading below $1.20, thanks to Hungary's threatened default. Add to that a jobs report much worse than was expected, an awareness the federal stimulus is coming to an end, hints from the Fed that interest rates will begin to rise and the growing discontent with petroleum producers. Taken all together, these factors constitute a sure-fire recipe for a general decline in the price of stock, which we are seeing now.
     Since I believe the market will eventually recover, a time for avid buying is approaching. I would be buying now except for one thing: Prices of all the stocks I own are still well above what they were in March 2009. I plan to hold back until prices approach those lows again unless, of course, the present trend reverses.
Seán

quote:

Originally posted by Sean:
    As I write this the Euro is trading below $1.20, thanks to Hungary's threatened default. Add to that a jobs report much worse than was expected, an awareness the federal stimulus is coming to an end, hints from the Fed that interest rates will begin to rise and the growing discontent with petroleum producers. Taken all together, these factors constitute a sure-fire recipe for a general decline in the price of stock, which we are seeing now.
     Since I believe the market will eventually recover, a time for avid buying is approaching. I would be buying now except for one thing: Prices of all the stocks I own are still well above what they were in March 2009. I plan to hold back until prices approach those lows again unless, of course, the present trend reverses.
Seán

The Euro-Dollar exchange rate I have to admit is something that has long baffled me. When initiated I could understand it adjusting to find what the market considered was true value. But as the Euro gained as much as 40% against the dollar with deficit spending by the US used as the excuse I couldn't much justify it by the fiscal policies in Europe. It seemed that the perception was the European Union would be far more fiscally responsible than the US. That perception has now been destroyed.

For the most part I consider this a correction to a more reasonable exchange rate. But time will time where it will settle longer term.

The Gulf, Europe, and Jobs are concerns. But our economy is expanding and job gains are still gains. Parsing the census jobs oput is valid in a way but I still think jobs are jobs and the stimulus effect of any jobs shouldn't be totally dismissed. Yes we want more, so what? Job growth for three months in a row is good news no matter how meager. Beats losing 750,000 jobs a month by a long way.

I think this correction after the huge gains last year is not out of line. I do think it is oversold in regards to earnings and future growth.

I suspect it is merely the perception of future growth that is holding us back with all the negatives we are seeing daily. The gulf spill is big news and weighs on the mood of America I think. Not to dismiss the real damage to jobs and business. We had a similar conversation over Katrina.

I think your worst case scenario, best buying price opportunity is a bit too pessimistic/optimistic. I think earnings which are still growing will prevent a return those levels. That is unless there is some real damage to our economy.

I am looking hard and still fail to see a double dip. Things holding back recovery, yes, but a damaging downturn from here is far from clear, but is the fear of many.

So it may be prudent to be careful and watch at this point. I am still smarting a bit over my purchase of BP who I thought would find a way to shut off that well long ago. AT least I was not alone in that expectation.

     The Telltale Yield Curve shows decreased returns from top to bottom, which indicates investment money is seeking somewhere safe to hide until the Euro storm is over. I had bought the fiction that the Euro was, somehow, sounder than our Dollar, contrary as that was to the dictates of simple common sense. The history of Europe is rife with instances of the currencies of single countries going bad—How could anyone believe a discordant gaggle of them might possibly do better? At the moment I'm not setting any lower limit on the Euro/Dollar exchange rate.
     US workers have faced unemployment for a long time and they wait impatiently for better news. They have an understandable tendency to panic at any sign the recovery has stalled. After all, many of live from one pay-check to the next while supporting a nearly unsustainable load of debt. As you say, any job increase is good, but people want a miracle.
     Frankly, I'm surprised to see stock prices fall so quickly, even with the multiplicity of bad things happening. Fear is, I think, the driving force, but that could be replaced quickly by euphoria. All I know to do is wait attentively until I see signs of a reversal, or until stock prices fall to the levels we saw a year ago. In recent days I've purchased XOM, AA and INTC only to see their prices falling. Now I'll wait more patiently before I buy again. BP is likely at its low now and may recover suddenly when it controls the spill. I will be buying some of it at that time, if its price doesn't rise too quickly and if the clean-up costs seem reasonable.
     It seems certain that our government will be inspired by this spill to introduce stern measures to prevent future spills and assemble equipment to control such spillage. This will probably be done at the expense of oil companies, to the detriment of shareholders. I shall willingly accept the cost.
Seán

     Here is a graphic display of the US Dollar to Euro Exchange Rate over time.
Seán

quote:

Originally posted by Sean:
     Here is a graphic display of the US Dollar to Euro Exchange Rate over time.
Seán

I liked your previous post, comments. As to the Euro, looking at 10 years makes me shake my head as the Euro had risen almost 100% from the low to the high. I can concede that maybe the euro was under valued at first and overvalued at the high but to be changing by 100% against the dollar in a decade? The dollar didn't change that much and I have believed and said that all along.

As to playing that, I saw the overseas earnings of multi-nationals to be high as a result of currency exchange for a long time. I played that some, but backed off too early. Glad I missed this correction to that.

I wonder if the Euro will fall enough to take advantage again, or when. I can't say it will. But the shift in the currency along with the fall in stock prices over there may make the combination profitable if one is not counting either to be too strong. Not yet.

But this struck me:

Mortgage rates near all-time low, says Freddie Mac

I wonder what their definition of "all-time" would be. Is it the low for how long Freddie and Fannie have been tracking it? All-time as in ever? All time for as long as we have had 30 year mortgages? All-time in as long as we have had Fannie?

In any case it is one of those outlier statistics that causes me to put up my antenna. What is the cause and is it justified or an abberation that portends a forthcoming change that may be severe?

In other words, is it a mispricing that can be played? Surely it sets up the case for consideration of it being a top or nearing the top for bond prices. Not that it has to be since records can be broken. But they rarely are broken.

I also can't see 30 year bonds being priced at near 3% to be justifiable. I get the flight to safety argument but that is not justification, just a supply and demand pricing which need not hold. It could be there is just so much money out there or so little demand for debt.

But a shift in demand I think can change the current situation dramatically since we are seeing pricing that predicts a long term continuation of extremes out of the historical norm.

     Actually, some mortgage rates were lower in 2003. The current rates are low because of the scarcity of buyers, I suppose.
Seán

     Gains exceeded 2% for US stock indices today. For most issues volume was less than average, which suggests to me that buyers were only covering their shorts. However, the underlying upward pressure came from a stronger Euro, which may last a while.
Seán

     BP appears to have consented to meet Mr Obama's demand for $20-billion to be placed in escrow to cover damages relating to the oil spill. Their quick acceptance makes me wonder if there is a catch somewhere. Could the $20-billion figure place a cap on how much BP can be forced to pay?
Seán

quote:

Originally posted by Sean:
     Actually, some mortgage rates were lower in 2003. The current rates are low because of the scarcity of buyers, I suppose.
Seán

Just the ARMS it appears to me and I suspect that is a result of teaser rates and balloon payments requiring a 3 to 7 year time frame to refinance. And those balloons popped. Since Fannies and Freddie don't do ARMS I doubt that is what they were talking about.

quote:

Originally posted by Sean:
     Gains exceeded 2% for US stock indices today. For most issues volume was less than average, which suggests to me that buyers were only covering their shorts. However, the underlying upward pressure came from a stronger Euro, which may last a while.
Seán

Big options expiration this Friday. As I noted previously, at this point in time it seems to relatively unformed me that options traders have been making their moves earlier than expiration.

BP did agree to an escrow fund. I am guessing it was done to preserve any US attempts or new laws that might impact their independance in the US. This allows them to remain captain of their (listing) ship.

And no, it doesn't cap their liability in any way. Obama made a point of making that clear.

But crud. They did cancel the dividends. I bought it for the dividends and was willing to hold and ride it out as long as they kept paying me. Now I will have to reconsider. Although as a result of the new decisions the stock bounce was worth more than the dividends. And nothing will be clear until BP makes more headway on capturing the oil then shutting it off.

Since they pay $10 billion a year in dividends and make billions a quarter it might not take them long to create that fund. They have $10 billion in cash I heard. The dividend could be restored to some extent next year.

It will only be another month or so until the relief wells near completion. Odd they are not talking about their progress. I like to imagine that is so they can provide "good" news about an earlier completion later. But everybody assumes that will work. Yikes that is a bad thought.

BP provides one sixth of all dividends in the UK with a million shareholders there counting pension funds.

I wonder about how much squeeling we will hear once this news is digested there.

     BP agreed so meekly to the settlement that I was reminded of a poem by Rudyard Kipling.
Seán

This is what BP concedes.

Doug,
     I've been looking at maps like this one, which indicates oil may reach the shore anywhere between New Orleans and Pensacola. Booms may stop it and BP, with Mother Nature's help, will clean it up, so all will be well eventually. Eventually is the catch word: No hurricane is forming now, but the season is upon us. I wonder how much oil will come ashore if a hurricane is behind it? Something else that troubles me is the 6000 seagoing vessels working on the spill; where do they plan to harbor them if a major storm approaches?
Seán

quote:

BP agreed so meekly to the settlement that I was reminded of a poem by Rudyard Kipling.
Seán

quote:

This is what BP concedes.

True. I don't agree with the idea that BP was bullied in to doing anything.

I have little doubt the escrow account was all about maintaining control and bringing down the negative rhetoric. I have read that BP has a number of options they could consider. They are comprised of a number of corporate subsidiaries and only the North American one is directly liable and they could bankrupt it protecting the rest of the company.

Going after the rest of the company would be more difficult.

quote:

I've been looking at maps like this one, which indicates oil may reach the shore anywhere between New Orleans and Pensacola.

Interesting to ponder but I think even with all our knowledge and technology we don't really know what mother nature will do. We don't exactly have other experience with magnitude of a spill or anything like it.

quote:

Something else that troubles me is the 6000 seagoing vessels working on the spill; where do they plan to harbor them if a major storm approaches?
Seán

For one, many of the smaller ones are hired locally, out of work fishermen, and have ports already. One thing I learned during the Rita and Katrina storms was that often the large ships could outrun the storms or hold off in areas in the Gulf not under threat. I suppose much less true for the smaller boats but they would have been there anyway.

I have heard they are considering such events. They recently are requiring these floating hotels to be on station to reduce the time those on the boats spend breathing fouled air.

The logistic problems must be getting incredible as the efforts continue to ramp up.

It looks like we have another month or so of this.

They say one of the relief wells is 200 feet from the pipe but they are heading further down with it, wanting to intercept the pipe closer to the reservior. Thus they are sticking to the August timeframe.

They must have a reason. I have seen occasional statements about the lack of geological stability over that reservoir that is so disturbing I don't want to consider it.

Doug,
     Looking at the BP chart tempts me to buy a little of the stock. However, I
will wait until the volume being traded has diminished. One never knows what turn
mob psychology may take, but it is seldom beneficial.
Seán

quote:

Originally posted by Sean:
Doug,
     Looking at the BP chart tempts me to buy a little of the stock. However, I
will wait until the volume being traded has diminished. One never knows what turn
mob psychology may take, but it is seldom beneficial.
Seán

This is what I was concerned about when they didn't put much pressure on the well trying to do the top kill:

quote:

Markey reminded BP CEO Tony Hayward in the letter that Allen has expressed similar concerns, quoting a briefing in which the admiral said: "I think that one thing that nobody knows is the condition of the wellbore from below the blowout preventer down to the actual oil field itself."

"One of the reasons we did not continue with the top kill at higher pressures," Allen said in that June 17 briefing, referring to an unsuccessful effort in May to kill the well by pumping drilling mud into it through its failed blowout preventer, "was a concern that if we increased the pressure too hard it might do damage to the casing and the wellbore. What we didn't want was open communication of any oil from the reservoir ... to the seafloor and then ... uncontrolled discharge at that point."

Read more: http://www.kansascity.com/2010...s.html#ixzz0s0kXWNOi

What I have also seen was comments saying they think the seabed floor may be cracking and sink in to the reservoir. Then nothing will stop the leak until the oil is emptied. They say there are multiple places where oil is leaking through the rock from cracks in the bedrock. But so far they assume that is leaking from around the casing and first coming up the shaft before the pressure pushes it out the rock aways up the well, they think.

It might take a whole mess of concrete to shut that thing off, if they can, when they get down there, low enough. When they first tried to drill the well they had to stop and start over because the rock was cracking. The driller blamed BP for that, for drilling too fast with too much downward pressure.

And I think the bad rock is why they are going down so far with the relief wells too. Originally I think they thought they would intercept the well higher, like where they are now.

Who is to blame if they can't shut it off?

quote:

Who is to blame if they can't shut it off?—BullDoug

     BP's people drilled a well they are unable to control, so it is easy to attach the guilt to them. However, they did submit a plan that, although inadequate, was accepted by the MMS. Ultimately blame must be assigned, to that agency since it officially approved the project after insufficient study. We know now MMS corruption, cronyism and incompetence persisted even after Ken Salazar instituted his reforms.
Seán

quote:

Originally posted by Sean:

quote:

Who is to blame if they can't shut it off?—BullDoug

     BP's people drilled a well they are unable to control, so it is easy to attach the guilt to them. However, they did submit a plan that, although inadequate, was accepted by the MMS. Ultimately blame must be assigned, to that agency since it officially approved the project after insufficient study. We know now MMS corruption, cronyism and incompetence persisted even after Ken Salazar instituted his reforms.
Seán

I was thinking more along the lines of the fracturing rock or the floor bed collapsing if the oil is withdrawn (or leaks out) as some have feared and suggested. The multiple leaks, that they don't show, coming from the bedrock after the blowout suggests the rocks is fractured down to some distance. This we know.

I assume going down two miles likely goes through all different sorts of rock. Maybe not. I wonder if the incredible pressure of the well is a result of holding up the sea floor?

So my question about responsibility was asking if this should have been known or does it make it more accidental?

Of course we already know that BP should have done a complete cementing instead of trying to go on the cheap with a single wall pipe and only several spots of cement to try to seal it. Then they pulled out the mud and replaced with water as well to cut costs. They certainly have a lot of responsibility.

And they didn't even follow their own design specifications. That is a huge mistake.

quote:

And they [BP] didn't even follow their own design specifications.—BullDoug

     Where that can be proved, BP should be held criminally liable. Lax supervision does not vindicate malpractice.
     The thought that the rate of oil escape might be exacerbated by a settling of the sea floor has troubled me since the beginning of the spill. I searched the Net for others with the same concerns and found much poorly informed discussion. I regret to say I've seen no assessment by geologists thus far, but such should be forthcoming. If it turns out cracking of the floor does result in oil leaks, further deep water drilling may be precluded.
Seán

     I have no reason to believe the current "correction" is at an end, but when PFE bounced off an apparent bottom of $14.12 today, I bought a little of it at $14.13. After all its dividend at that price exceeds 5%, so I won't mind holding it a while.
Seán

I felt good or at least a little relieved yesterday seeing the market rise around 170 DOW points in the morning only to be concerned as it was given back in the afternoon.

This morning looked all to similar as the DOW was up the same 172 points at the time, same time.

I was considering only checking the market in the mornings to improve my attitude.

But then I would have missing a most positive afternoon.

You seem to do extraordinarily well picking short term bottoms and often get a nice bounce in short order. The PFE being a case in point today.

I know your choices are for longer term and the overall market hasn't treated us well in that regard recently.

But you do so well short term maybe you should be more of a trader.